By Mark Buckshon
CaDCR staff writer
Creditors in the Bondfield Construction Co. Ltd. bankruptcy have confirmed a victory, and Canadian bankruptcy law has been tightened, after Canada’s Supreme Court on Oct. 11 ruled against the company’s former president John Aquino.
In a unanimous decision, the justices affirmed two previous Ontario lower court decisions that Aquino and his associates must pay creditors more than $33 million “they siphoned out of the company through a fraudulent scheme,” the Globe and Mail reported.
In 2019, Bondfield went into bankruptcy in the biggest construction company failure in Canada’s history. Among the projects caught in the snare: The redevelopment of St Michael’s Hospital in downtown Toronto.
See Case in Brief: Aquino v. Bondfield Construction Co.
Zurich Insurance Group Ltd. ended up needing to pay out $200 million in massive surety claims for more than $1 billion of public sector contracts awarded to Bondfield. The company later sued Aquino, “alleging he ‘misappropriated’ or misused funds that should have been reserved to pay subcontractors and suppliers as required under Ontario’s Construction Act,” the Globe and Mail reported in an earlier story.
Aquino and his lawyers argued that bankruptcy law as written meant he didn’t have to pay back creditors even if Bondfield paid millions of dollars to shell companies for work that never even started.
However, the courts – including the Supreme Court – rejected that reasoning.
“The Supreme Court focused on the purpose of Section 96 of the Bankruptcy and Insolvency Act, around which the case revolved. The section is about transferring assets for less than they’re actually worth,” the Globe and Mail reported.
The aim of the law is to “protect creditors from harmful actions by a debtor that would diminish the assets available for recovery,” wrote Supreme Court Justice Mahmud Jamal, in a 7-0 ruling.
Section 96 of the Act is generally applied in cases where company executives attempt to shield corporate assets from creditors by moving them to a related entity at prices below actual value, the newspaper reported.
“The Supreme Court decision clarified legal concepts in the context of bankruptcy, such as corporate attribution doctrine, which is about connecting the actions and intent of people running a company with the corporation itself. In two words, the court effectively said: context matters.”
“This will make it easier for insolvent companies to collect on behalf of creditors against former executives who defrauded or otherwise took corporate assets,” the Globe and Mail quoted lawyer Jeremy Opolsky as saying. Opolsky is a partner at Torys LLP. The firm was part of the Aquino case, representing KSV Restructuring Inc., in its capacity as the trustee-in-bankruptcy of Forma-Con, a Bondfield subsidiary.
Aquino’s lawyers had argued that his “fraudulent state of mind” cannot be attributed to Bondfield under the corporate attribution doctrine, as they claimed exceptions should apply because Bondfield did not benefit. Justice Jamal disagreed: “The corporate attribution doctrine does not countenance – much less require – such a perverse result,” he wrote.
Meanwhile, a criminal trial of Aquino and Vas Georgious, St. Michael’s Hospital’s former chief administrative officer, is scheduled to start on Nov. 4. They are fighting fraud charges, laid in connection with a $300 million hospital redevelopment contract awarded in 2015 to Bondfield.
